To some extent their unease is justified. Actively managed funds in South Africa<\/strong> often seem to have holdings that include excessive overlaps<\/strong> with one another. Take this analysis a small step further, by comparing their main holdings to the equity indices<\/strong>, and you\u2019ll find that many actively managed funds also hold very similar shares<\/strong> to the benchmarks to which they are compared. It seems that there may be reduced appetite for distinction<\/strong> in the South African active management industry.<\/p>\n\n\n\n Now there are rigorous, experienced, clever, and bold people in the South African investment landscape, which begs the question, why are we seeing this aggregation \u2013 or flocking \u2013 around certain stocks, particularly those that are keystones to indices? Some theories would include words like \u2018complacency\u2019. Big funds have had great success<\/strong> as businesses attracting huge inflows. There may be an impulse to protect not just the business but the investment model that underpins it.<\/p>\n\n\n\n Other theories might include the word \u2018timidity\u2019. Perhaps fund managers have become timid, unwilling to voice their ideas of greatest conviction because of peer group anxiety. For all their faults, sheep know that there is always comfort and warmth in the flock or, in this case, the flock stock.<\/p>\n\n\n\n A third theory might include the word \u2018dilution\u2019. Where good ideas \u2013 great ideas \u2013 are being voiced, it is quite possible that they are \u2018diluted\u2019 by the requirements of managing large scale assets. Some really forward-thinking stock picks might just be unavailable to large funds because the market capitalisation of the stock in question is simply too small to move the needle as a percentage of a large fund. In such cases even a thirty percent appreciation in the stock does not warrant the time, effort, and expense of including it. Other stocks are traded in such small quantities that it would take months to achieve a meaningful stake.<\/p>\n\n\n\n The dominance of flock stocks in funds should not be taken as confirmation that this convention is necessarily \u2018wise\u2019, or indeed anything more than received wisdom and in some cases a symptom of systemic or product limitations. Nor should the ubiquity of flock stocks<\/strong> inspire us to give in the ghost and defer exclusively to passive, index-tracking funds as the go-to solution. It should, instead, inspire us to distinguish ourselves<\/strong>.<\/p>\n\n\n\n![\"\"](\"https:\/\/moneybetter.co\/wp-content\/uploads\/2022\/10\/Flocking-Around.png\")
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